9911796707
|
Home
Issues Involved:
1. Whether the sums totaling Rs. 24,25,000 formed part of the 'actual cost' of the assets of the assessee. 2. Whether the assessee-company was entitled to depreciation and development rebate on the expenses of Rs. 24,25,000. Detailed Analysis: Issue 1: Actual Cost of Assets The primary issue was whether the sums totaling Rs. 24,25,000 could be considered part of the 'actual cost' of the assets for the purpose of depreciation and development rebate under the Indian Income-tax Act, 1922. The assessee, a company engaged in the production and sale of cotton textile goods and paints, set up a rayon plant and incurred various preliminary expenses amounting to Rs. 24,25,000. These expenses included interest on loans, fees for survey and registration, rewards to officers, and other estimated expenses. The Income-tax Officer initially subtracted the entire sum from the total cost for depreciation purposes. However, the Appellate Assistant Commissioner and subsequently the Income-tax Appellate Tribunal allowed the inclusion of these expenses, except for rewards paid to officers. The Tribunal's decision was based on the principle that the 'actual cost' should include all expenditures necessary to bring the assets into existence and put them in working condition. This interpretation aligns with commercial and accountancy practices, which consider preliminary expenses directly connected with the acquisition of fixed business assets as part of the actual cost. This view is supported by various authoritative texts on accountancy and commercial practices. Issue 2: Entitlement to Depreciation and Development Rebate The second issue was whether the assessee was entitled to depreciation and development rebate on the expenses of Rs. 24,25,000. The relevant provisions under Section 10 of the Indian Income-tax Act, 1922, were examined. Section 10(2)(vi) provides for depreciation allowance on the written-down value of buildings, machinery, plant, or furniture, while Section 10(2)(vib) provides for development rebate on the actual cost of new machinery or plant. The court noted that the term 'actual cost' is not defined in the Act, and therefore, it should be understood in the context of commercial and accountancy principles. The expenses in question, including interest on loans and other preliminary expenses, were deemed necessary for setting up the factory and hence could be capitalized and added to the actual cost. The court also referred to several authoritative texts and case laws to support this interpretation. The court further clarified that the source of funds used to meet the cost, whether it is the company's own capital or borrowed capital, is immaterial. The focus should be on the actual cost incurred by the assessee. The Explanation to Section 10(5)(c), which excludes subsidies or grants from the actual cost, does not apply to loans. Conclusion The court concluded that all the disputed items, including interest on loans and other preliminary expenses, were properly added to the actual cost upon which the assessee was entitled to depreciation and development rebate. The court answered both questions in the affirmative, in favor of the assessee and against the department. The assessee was also entitled to costs assessed at Rs. 400.
|
